1. You are the beneficiary of a trust fund established by your aunt. Your aunt h
ID: 2376348 • Letter: 1
Question
1. You are the beneficiary of a trust fund established by your aunt. Your aunt has given you two options to choose from with respect to how you wish to receive the money. You can elect to receive either $8,000 per year for the next nine years or $6,000 per year for the next 15 years. You can invest the proceeds at an annual rate of 12%. If the trust fund monies will be received at the end of each year, which method should you choose in order to maximize your income from the trust? SHOW ALL COMPUTATIONS! State your conclusion clearly.
2. Alicia wants to have $20,000 in her granddaughter%u2019s savings account at the end of 20 years. How much must she deposit into this account each year if the account earns 6% interest compounded annually? (HINT: You will need the Future Value tables. You can google them on the internet or see me for a copy.)
Explanation / Answer
1. NPV of 8000 per year for nine years = 8000*(1-1.12^-9)/0.12 = 42626
NPV of 6000 per year for 15 years = 6000*(1-1.12^-15)/0.12 = 40865.19
so option 1 is better because it has higher net present value
2.let she deposits amount =A
20000 = A*((1+0.06)^20 -1)
A = 9061.52
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